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when the wheels come off?

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  • when the wheels come off?

    William Bernstein MD, discusses his 4 pillars, and when he describes history he often mentions that every 10-15 years the “wheels fall completely off the stock market” .
    I know you cannot specifically time it, but it seems like we are due. Instead of adding extra into my taxable index funds i am aggressively paying down my mortgage with new cashflow. I recognize this is timing but i rationalize as increasing my realestate holdings and diversification. I have a lot in the stock market (>3M in index funds) and i don’t plan on trying to move in and out but i feel good about not pouring more into my taxable.
    My question for you smart folks: do you think we will have a sustained drop of greater than 20% in the nest 5 years? Are wheels coming off soon? I hear the 4 most dangerous words: “this time it is different “ by some, but others keep predicting doom that has yet to materialize.
    What do you think? Would you fault me for paying down mortgage rather than putting more into taxable vanguard stock mutual funds?

  • #2
    Wouldn't you want to keep the mortgage if the wheels fall off? Put that extra cash to work.

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    • #3


      I know you cannot specifically time it, but
      Click to expand...


      “but” - such an innocuous 3-letter - yet dangerous - word following an intelligent statement.

      Where is Sir John Templeton when you need him?
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      • #4


        do you think we will have a sustained drop of greater than 20% in the nest 5 years
        Click to expand...


        Probably.  We just had one.  It was not very sustained but we did not know that when it was happening.

        Corrections happen about 1 once a year.

        Drops of 20% every 3-5 years

        More major drops every few decades.

        It is normal and healthy for the market to do so.  The only people it really hurts are people who try to time it or time it by poor luck.  Like retiring at the wrong time.

         

        If you are worrying more about it you might be due to take some money off the table and go to a more conservative AA.  Paying down a mortgage would be a fine way to do that.

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        • #5
          what does sustained mean in this context?

          stays 20 or more% under for more than 3 years?

           

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          • #6
            I don’t think the danger is the “wheels coming off”.
            Paying off your mortgage isn’t exactly a fatal financial mistake.
            Spin this one, what the heck you gonna do when the mortgage is gone? You can see the flaw in letting emotions drive financial decisions. The “end is near for my mortgage “ isn’t a problem. Now you are really screwed.

            Wheels go back and run better too.

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            • #7
              Stay the course.

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              • #8
                Here's a good thread for you: https://www.whitecoatinvestor.com/forums/topic/investing-at-the-top-of-the-market/

                Note the date: November 28, 2016, when someone had the exact same concerns.

                From then until now, the market has returned almost 14% annually with dividends reinvested, which even includes the brief bear market/correction.

                 

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                • #9




                  Here’s a good thread for you: https://www.whitecoatinvestor.com/forums/topic/investing-at-the-top-of-the-market/

                  Note the date: November 28, 2016, when someone had the exact same concerns.

                  From then until now, the market has returned almost 14% annually with dividends reinvested, which even includes the brief bear market/correction.

                   
                  Click to expand...


                  It will be fun as time goes on seeing what people were worried about throughout the history of this forum.  Bogleheads has been around a while and I find it amusing to look at the old threads for that reason.  It puts things in perspective.

                  Unless this time is really going to be different...

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                  • #10
                    Of course there will be correction/bear market.  Ignore the hype and stay the course.  Perfect is the enemy of good enough.  Pay down your mortgage if debt bothers you.

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                    • #11
                      I thought this was going to be another get a new car/truck vs keep my beater thread

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                      • #12




                        I thought this was going to be another get a new car/truck vs keep my beater thread
                        Click to expand...


                        When the wheels come off is a good sign to ditch the beater.

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                        • #13
                          I have really put myself in the corner.  Unfortunately I have no debt left, I feel lost without the ability to ask that eternal question, "mortgage or taxable account?"

                          Life is so, so hard!  I have to search for new questions to ask myself, "taxable or seats in the front of the plane?"

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                          • #14
                            You wouldn't be afraid of down markets if you knew how to profit in them. Maybe that is your problem and insecurity? Knowledge is the antidote to fear.

                            Down markets are down markets since the general economy/unemployment gets sketchy and there is less productivity by the companies and less new money coming in to the market. That is only a bad thing if you are sitting and sitting and sitting long on stock and worrying about it. If a confirmed bear market hits, nothing is stopping you from selling shares, selling covered puts, buying inverses and shorts, or just sitting in cash or gold and then re-buying later.

                            Nobody is saying you can time it, but you absolutely can react appropriately (whatever that means for you personally). True bear markets appear to crash fairly fast when you look at long term graphs, but like most overnight success or failure, it actually takes months to years. You can sit and ride it out, buy more, or you can even try to profit. It's all up to you and your skill set and goals and comfort level.

                            For people without the skill/interest (401k types and indexers, basically), I say to just buy consistently, buy even more when market slumps hit... and buy all you possibly can and keep buying when major confirmed bears hit. Those are usually the hardest times to have cash available, but you can scrape up a bit more buying power or sell some shares and buy back in in a few weeks or months; it takes courage but can be amazing for those who can do it. True, losing less isn't the same as winning, but actual winning is very tough in bear times (even for skilled investors). The indexer who buys more aggressively as prices drop won't really seem to be getting a profit when they look at unrealized gains and share valuations in the short term, but getting the shares at discount is still preferred when compared to just continuing with their usual DCA through a bear market.

                            Diversity is only a small piece of the puzzle. I could have all the diversity of baseball bats in the world... but if I can only hit fastballs down the middle, that's going to be a problem sometimes. Personally, I would love to face a screwball or sinker pitcher in the markets next week... good challenge, great opportunity for gains, and fun times. Many other investors share the same sentiment. But that's JMO.

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                            • #15
                              Even before reaching >3M in index funds, I would have paid off the mortgage.  So that seems like a reasonable strategy to me regardless of the reason.

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